On May 17, 2018, FERC issued two orders denying requests for rehearing of two orders rejecting certain Southwest Power Pool, Inc. (“SPP”) Open Access Transmission Tariff (“OATT”) proposals that, as FERC found, provided Auction Revenue Rights (“ARRs”) and Long-term Congestion Rights (“LTCRs”) on an unjust and unreasonable basis (“May 2018 Orders”). FERC’s previous orders, both issued on October 19, 2017 (“October 2017 Orders”), found that SPP was impermissibly providing ARRs and LTCRs for network service subject to “redispatch” (or, curtailment), on the same basis as network service not subject to redispatch (see October 25, 2017 edition of the WER). In these latest orders, FERC rejected claims that, among other things, the October 2017 Orders had violated the contract rights of eligible network customers and that they constituted unlawful retroactive agency action.

Under SPP’s OATT, when a firm transmission service request requires transmission upgrades, SPP commences service prior to completion of the transmission upgrades if SPP can address the constraint identified in the system impact studies through redispatch until the transmission upgrades are placed into service. While SPP’s OATT made clear that customers taking point-to-point service subject to redispatch were ineligible to receive ARRs and LTCRs, the OATT had no such limitation on ARR and LTCR eligibility for customers taking network service subject to redispatch. In March 2016, SPP proposed revisions to its OATT that would permit customers with network service subject to redispatch to obtain ARRs and LTCRs associated with that service. FERC rejected this proposal in a September 16, 2016 order and established a paper hearing under Federal Power Act section 206 to examine whether SPP’s then-existing tariff was unjust and unreasonable to the extent it could be read to extend the eligibility for ARRs and LTCRs to network customers with service subject to redispatch. SPP submitted a follow-up proposal in a separate docket in May 2017 to address the potential disparate ARR and LTCR treatment between network and point-to-point service subject to redispatch. In conjunction, SPP also proposed to grandfather in all impacted network service customers approved for service prior to a proposed effective date.

In the first of the two October 2017 Orders, FERC closed the paper hearing by concluding that it was inappropriate for SPP to provide ARRs and LTCRs to network customers subject to redispatch while transmission upgrades are being constructed on the same basis it provides ARRs and LTCRs to firm transmission customers not subject to redispatch. FERC also rejected SPP’s follow-up May 2017 proposal in the second October 2017 Order, finding that SPP’s grandfathering plan was an inappropriate extension of practices that FERC had already rejected as unjust and unreasonable. Instead, FERC found that more limited grandfathering struck the appropriate balance between customers that relied on SPP’s interpretation of its OATT and the need to prevent the indefinite continuation of an unjust and unreasonable practice.

Several parties requested rehearing of the October 2017 Orders, arguing, among other things, that FERC erred in: (1) disregarding the contract rights of existing network service customers taking service subject to redispatch; (2) concluding that such service was not similarly situated to network service not subject to redispatch; and (3) regarding the order on SPP’s May 2017 follow-up proposal, that FERC determined that its actions were not retroactive in effect. On another side of the spectrum, a separate group of customers argued that FERC erred in balancing the interests and allowing grandfathering at all in its October 2017 paper hearing order.

In the May 2018 Orders, FERC denied rehearing of the October 2017 Orders. FERC rejected out of hand any notion that it had violated SPP customers’ contract rights, as every service agreement incorporates by reference the terms and conditions of SPP’s OATT — including those terms and conditions that FERC requires to be changed. That said, because SPP’s initial OATT was silent on the ARR/LTCR eligibility for network service subject to redispatch, it was appropriate, FERC stated, to balance the interests of customers that relied on SPP’s interpretation of that silence. In so noting, FERC rejected claims that its limited grandfathering was inappropriate.

FERC also reaffirmed its prior determination that, because network service subject to redispatch is a service conditioned on implemented transmission upgrades, it is not similarly situated to firm transmission service not subject to redispatch. Rather, FERC asserted, network service subject to redispatch is similarly situated to network service not subject to redispatch for only those times of year and in the amounts of service provided without redispatch.

Finally, FERC rejected arguments that its decision regarding SPP’s May 2017 follow-up proposal constituted impermissible retroactive agency action—an argument premised on the assumption that customers’ contract rights were abrogated. As FERC stated, customers were not losing any rights that had already been granted, and remain eligible to be allocated ARRs in the future, subject to the limitation that FERC found necessary to ensure that SPP’s OATT was just and reasonable and not unduly discriminatory or preferential.

A copy of FERC’s May 17, 2018 order in the paper hearing proceeding can be found here. A copy of FERC’s May 17, 2018 order on SPP’s follow-up tariff proposal docket can be found here.

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